Transcat(TRNS) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS This section presents Transcat, Inc.'s unaudited consolidated financial statements, including statements of income, comprehensive income, balance sheets, cash flows, and changes in shareholders' equity, along with detailed notes explaining accounting policies, debt, stock-based compensation, segment performance, business acquisitions, and a subsequent event Consolidated Statements of Income This section presents the company's unaudited consolidated statements of income, detailing revenue, gross profit, operating income, and net income performance Second Quarter Ended September 23, 2023 vs. September 24, 2022 (in thousands) | Metric | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :----------------------- | :----------- | :----------- | :--------- | :--------- | | Total Revenue | $62,804 | $56,439 | $6,365 | 11.3% | | Gross Profit | $20,125 | $16,767 | $3,358 | 20.0% | | Operating Income | $1,643 | $3,626 | $(1,983) | -54.7% | | Net Income | $460 | $2,357 | $(1,897) | -80.5% | | Basic Earnings Per Share | $0.06 | $0.31 | $(0.25) | -80.6% | | Diluted Earnings Per Share | $0.06 | $0.31 | $(0.25) | -80.6% | Six Months Ended September 23, 2023 vs. September 24, 2022 (in thousands) | Metric | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :----------------------- | :----------- | :----------- | :--------- | :--------- | | Total Revenue | $123,402 | $111,100 | $12,302 | 11.1% | | Gross Profit | $38,835 | $32,805 | $6,030 | 18.4% | | Operating Income | $6,283 | $7,230 | $(947) | -13.1% | | Net Income | $3,409 | $5,429 | $(2,020) | -37.2% | | Basic Earnings Per Share | $0.44 | $0.72 | $(0.28) | -38.9% | | Diluted Earnings Per Share | $0.43 | $0.71 | $(0.28) | -39.4% | Consolidated Statements of Comprehensive Income This section presents the company's unaudited consolidated statements of comprehensive income, including net income and other comprehensive income components Second Quarter Ended September 23, 2023 vs. September 24, 2022 (in thousands) | Metric | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net Income | $460 | $2,357 | $(1,897) | -80.5% | | Currency Translation Adjustment | $(352) | $(831) | $479 | -57.6% | | Total Other Comprehensive Income (Loss) | $(346) | $(838) | $492 | -58.7% | | Comprehensive Income | $114 | $1,519 | $(1,405) | -92.5% | Six Months Ended September 23, 2023 vs. September 24, 2022 (in thousands) | Metric | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net Income | $3,409 | $5,429 | $(2,020) | -37.2% | | Currency Translation Adjustment | $124 | $(1,271) | $1,395 | -109.8% | | Total Other Comprehensive Income (Loss) | $136 | $(1,291) | $1,427 | -110.5% | | Comprehensive Income | $3,545 | $4,138 | $(593) | -14.3% | Consolidated Balance Sheets This section presents the company's unaudited consolidated balance sheets, outlining assets, liabilities, and shareholders' equity As of September 23, 2023 vs. March 25, 2023 (in thousands) | Metric | Sep 23, 2023 | Mar 25, 2023 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Total Current Assets | $65,173 | $67,599 | $(2,426) | -3.6% | | Property and Equipment, net | $35,648 | $29,064 | $6,584 | 22.6% | | Goodwill | $106,366 | $69,360 | $37,006 | 53.3% | | Intangible Assets, net | $23,156 | $13,799 | $9,357 | 67.8% | | Total Assets | $248,210 | $195,749 | $52,461 | 26.8% | | Total Current Liabilities | $28,111 | $28,318 | $(207) | -0.7% | | Long-Term Debt | $51,000 | $46,869 | $4,131 | 8.8% | | Total Liabilities | $109,958 | $96,119 | $13,839 | 14.4% | | Total Shareholders' Equity | $138,252 | $99,630 | $38,622 | 38.8% | Consolidated Statements of Cash Flows This section presents the company's unaudited consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities Six Months Ended September 23, 2023 vs. September 24, 2022 (in thousands) | Metric | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- |\ | Net Cash Provided by Operating Activities | $15,972 | $5,235 | $10,737 | 205.1% | | Net Cash Used in Investing Activities | $(18,326) | $(8,802) | $(9,524) | 108.2% | | Net Cash Provided by Financing Activities | $2,313 | $2,288 | $25 | 1.1% | | Net Decrease in Cash | $(285) | $(487) | $202 | -41.5% | | Cash at End of Period | $1,246 | $909 | $337 | 37.1% | Supplemental Disclosure of Cash Flow Activity (Six Months Ended, in thousands) | Metric | Sep 23, 2023 | Sep 24, 2022 | | :----------------------- | :----------- | :----------- | | Interest Paid | $1,680 | $829 | | Income Taxes, net Paid | $1,099 | $484 | Supplemental Disclosure of Non-Cash Investing and Financing Activities (Six Months Ended, in thousands) | Metric | Sep 23, 2023 | Sep 24, 2022 | | :---------------------------------------------------------------- | :----------- | :----------- | | Common stock issued for acquisitions | $34,769 | $145 | | Accrued holdback and contingent consideration related to acquisitions | $4,859 | $518 | Consolidated Statements of Changes in Shareholders' Equity This section presents the company's unaudited consolidated statements of changes in shareholders' equity, showing movements in common stock, retained earnings, and comprehensive loss Shareholders' Equity as of September 23, 2023 (in thousands) | Component | Amount | | :-------------------------- | :------- | | Common Stock | $3,989 | | Capital in Excess of Par Value | $64,310 | | Accumulated Other Comprehensive Loss | $(1,064) | | Retained Earnings | $71,017 | | Total Shareholders' Equity | $138,252 | - From March 25, 2023, to September 23, 2023, total shareholders' equity increased by $38,622 thousand, driven by issuance of common stock ($28,123 thousand), stock-based compensation ($1,241 thousand), and net income ($460 thousand), partially offset by repurchase of common stock ($(1,946) thousand)[19] Notes to Consolidated Financial Statements This section provides detailed notes explaining the company's accounting policies, debt, stock-based compensation, segment performance, business acquisitions, and subsequent events NOTE 1 – GENERAL This note describes Transcat's business, financial statement presentation, accounting estimates, revenue recognition, fair value, stock-based compensation, foreign currency, EPS, goodwill, intangibles, other liabilities, and recent accounting pronouncements - Transcat, Inc. is a leading provider of accredited calibration services, enterprise asset management services, and a value-added distributor of professional-grade test, measurement, and control instrumentation, primarily serving highly regulated industries like life science, industrial manufacturing, energy, and aerospace[21] - Non-cash stock-based compensation cost was $2.2 million for the first six months of fiscal year 2024, up from $1.9 million in the prior year period[28] Goodwill and Intangible Assets (Net Book Value as of September 23, 2023, in thousands) | Asset Type | Distribution | Service | Total | | :-------------------- | :----------- | :------ | :------ | | Goodwill | $38,553 | $67,813 | $106,366 | | Intangible Assets | $8,007 | $15,149 | $23,156 | Other Liabilities (September 23, 2023 vs. March 25, 2023, in thousands) | Category | Sep 23, 2023 | Mar 25, 2023 | | :------------------------------------ | :----------- | :----------- | | Accrued Compensation and Other Current Liabilities | $13,295 | $10,201 | | Other Non-Current Liabilities | $5,477 | $1,434 | - The company adopted ASU 2016-13 (Credit Losses) effective March 26, 2023, with no material impact on its consolidated financial statements[34] NOTE 2 – LONG-TERM DEBT This note details the company's credit facility, including revolving credit and term loan, outlining borrowing, acquisition financing, interest rates, and covenant compliance - The company has an $80.0 million revolving credit commitment through June 2026, with $32.0 million available for borrowing and $48.0 million outstanding as of September 23, 2023[37][40][143] - The 2018 Term Loan has $5.3 million outstanding as of September 23, 2023, with $2.3 million included in current liabilities, requiring $0.2 million monthly repayments through December 2025[41][144] - Interest rates for the revolving credit facility ranged from 6.4% to 7.1% for the first six months of fiscal year 2024. The 2018 Term Loan accrues at a fixed rate of 3.90%. LIBOR was replaced with Daily Simple SOFR effective July 1, 2023[42][141][156] - The company was in compliance with all loan covenants, including a fixed charge ratio covenant (>1.15:1.00) and a leverage ratio covenant (<3.00:1.00). The leverage ratio was 1.37 at September 23, 2023, down from 1.60 at March 25, 2023[43][142] NOTE 3 – STOCK-BASED COMPENSATION This note outlines the 2021 Stock Incentive Plan, details accounting for restricted stock units and stock options, and summarizes non-vested awards, option activity, expenses, and unrecognized compensation costs - As of September 23, 2023, 0.6 million shares of common stock were available for future grant under the 2021 Stock Incentive Plan[45] - Total expense for restricted stock units was $1.5 million for the first six months of fiscal year 2024, and unearned compensation totaled $5.2 million as of September 23, 2023[50] - The expense related to all stock option awards was $0.6 million in the first six months of fiscal year 2024[54] - Total unrecognized compensation cost related to non-vested stock options as of September 23, 2023, was $2.3 million, expected to be recognized over three years[56] NOTE 4 – SEGMENT INFORMATION This note provides disaggregated financial data for Transcat's Service and Distribution segments, as well as geographic revenue information for the reporting periods Segment Revenue (Second Quarter Ended, in thousands) | Segment | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :---------- | :----------- | :----------- | :--------- | :--------- | | Service | $41,431 | $35,267 | $6,164 | 17.5% | | Distribution | $21,373 | $21,172 | $201 | 0.9% | | Total | $62,804 | $56,439 | $6,365 | 11.3% | Segment Operating Income (Second Quarter Ended, in thousands) | Segment | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :---------- | :----------- | :----------- | :--------- | :--------- | | Service | $742 | $2,507 | $(1,765) | -70.4% | | Distribution | $901 | $1,119 | $(218) | -19.5% | | Total | $1,643 | $3,626 | $(1,983) | -54.7% | Geographic Revenue (Second Quarter Ended, in thousands) | Region | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :------------------ | :----------- | :----------- | :--------- | :--------- | | United States | $57,119 | $51,036 | $6,083 | 11.9% | | Canada | $3,896 | $3,868 | $28 | 0.7% | | Other International | $1,789 | $1,535 | $254 | 16.5% | | Total | $62,804 | $56,439 | $6,365 | 11.3% | NOTE 5 – BUSINESS ACQUISITIONS This note details several business acquisitions, outlining purchase prices, goodwill and intangible asset allocation, financial contributions, and an amendment to an earn-out agreement - Axiom Test Equipment, Inc. was acquired on August 8, 2023, for approximately $38.6 million ($10.0 million cash, $28.6 million common stock), contributing $1.4 million in revenue and $0.1 million in operating income to the Distribution segment from acquisition date to September 23, 2023[60][62][63] - SteriQual, Inc. was acquired on July 12, 2023, for approximately $4.3 million (common stock), contributing $0.7 million in revenue and an operating loss of less than $0.1 million to the Service segment from acquisition date to September 23, 2023[64][66][67] - TIC-MS, Inc. was acquired on March 27, 2023, for approximately $9.8 million ($2.9 million cash, $6.9 million common stock), contributing $1.7 million in revenue and $0.7 million in operating income to the Service segment from acquisition date to September 23, 2023[68][70][71] - An amendment to the NEXA earn-out agreement on September 11, 2023, revised potential earn-out payments up to $7.1 million for 2023-2025 based on consolidated EBITDA targets. The estimated fair value of these obligations was $2.8 million as of September 23, 2023, resulting in a non-cash expense[88][90][91] Unaudited Pro Forma Financial Information (Six Months Ended, in thousands except per share information) | Metric | Sep 23, 2023 | Sep 24, 2022 | | :----------------------- | :----------- | :----------- | | Total Revenue | $131,550 | $123,410 | | Net Income | $3,085 | $3,975 | | Basic Earnings Per Share | $0.40 | $0.53 | | Diluted Earnings Per Share | $0.39 | $0.52 | NOTE 6 – SUBSEQUENT EVENT This note reports on a public offering of common stock that closed shortly after the reporting period, generating significant net proceeds used to repay the revolving credit facility - On September 25, 2023, the company closed an underwritten public offering, selling 847,371 shares at $95.00 per share, generating $80.5 million gross proceeds and $75.5 million net proceeds[95] - A portion of the net proceeds from the public offering was used to repay the revolving credit facility in full[95] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Transcat's financial performance, condition, and future outlook, including a detailed analysis of revenue, gross profit, operating expenses, and net income for the second quarter and six months of fiscal year 2024, alongside discussions on liquidity, capital resources, and market risks Forward-Looking Statements This section outlines the forward-looking nature of the report and identifies key risk factors that could impact future results - The report contains forward-looking statements identified by words such as "anticipates," "believes," "estimates," "expects," "potential," "outlook," "seek," "strategy," "target," "could," "may," "will," "would," and other similar words[96] - Important risk factors include general economic conditions, inflationary impacts, competition, customer concentration in regulated industries, goodwill impairment, acquisition integration, cybersecurity risks, and foreign currency fluctuations[96] Critical Accounting Policies and Estimates This section confirms the consistency of critical accounting policies and estimates with previous annual reports - There have been no material changes to the critical accounting policies and estimates from the information provided in the Annual Report on Form 10-K for the fiscal year ended March 25, 2023[97] RESULTS OF OPERATIONS This section provides management's detailed analysis of the company's financial performance for the reporting periods Executive Summary This executive summary provides a high-level overview of Transcat's financial performance, highlighting revenue growth, gross profit, operating expenses, and net income - Consolidated revenue for Q2 FY24 was $62.8 million, an 11.3% increase year-over-year, primarily due to recent acquisitions, strong demand in the Service segment's highly-regulated end markets, and increased rental sales[98] - Gross profit for Q2 FY24 was $20.1 million, a 20.0% increase year-over-year, with consolidated gross margin rising 230 basis points to 32.0% due to operating leverage on fixed costs, increased technician productivity, and accretive gross margins from the rental business[99] - Total operating expenses in Q2 FY24 increased by 40.6% to $18.5 million, primarily due to a non-cash charge related to the amended NEXA earn-out agreement, incremental operating expenses from acquisitions, investments in technology, and higher incentive-based employee costs[100] - Net income for Q2 FY24 was $0.5 million, a decrease from $2.4 million in Q2 FY23, mainly due to lower operating income (driven by the NEXA earn-out charge) and higher interest expense, partially offset by lower provision for income taxes[101] Second Quarter Ended September 23, 2023 Compared to Second Quarter Ended September 24, 2022 This section provides a detailed comparison of Transcat's financial performance for the second quarter of fiscal year 2024 versus the prior year, highlighting revenue, gross margins, and operating expenses Revenue (in thousands) | Segment | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :---------- | :----------- | :----------- | :--------- | :--------- | | Service | $41,431 | $35,267 | $6,164 | 17.5% | | Distribution | $21,373 | $21,172 | $201 | 0.9% | | Total | $62,804 | $56,439 | $6,365 | 11.3% | - Service revenue growth included $2.6 million from acquisitions and 10.0% organic growth, driven by strong end-market demand and market share gains[104] - Distribution sales increased by $1.3 million from an acquisition, partially offset by slower demand for non-rental products[108] Gross Profit (in thousands) | Segment | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :---------- | :----------- | :----------- | :--------- | :--------- | | Service | $14,084 | $11,487 | $2,597 | 22.6% | | Distribution | $6,041 | $5,280 | $761 | 14.4% | | Total | $20,125 | $16,767 | $3,358 | 20.0% | - Total gross margin increased 230 basis points to 32.0%. Service gross margin increased 140 basis points to 34.0% due to increased revenue leverage and technician productivity. Distribution gross margin increased 340 basis points to 28.3% due to a favorable mix of higher margin products and increased rental revenue contribution[113][114][116] Operating Expenses (in thousands) | Expense Type | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Selling, Marketing and Warehouse | $6,856 | $5,900 | $956 | 16.2% | | General and Administrative | $11,626 | $7,241 | $4,385 | 60.6% | | Total | $18,482 | $13,141 | $5,341 | 40.6% | - The increase in General and Administrative expenses includes a non-cash charge related to the NEXA earn-out, incremental expenses from acquired companies, increased payroll costs, and continued investments in technology[117] - Operating expenses as a percentage of total revenue increased 610 basis points to 29.4%[118] - The effective tax rate for Q2 FY24 was 42.6%, up from 23.7% in Q2 FY23, with the decrease in tax provision due to lower operating income and higher interest expense[119] - Net income decreased by 80.5% to $460 thousand, primarily due to lower operating income and higher interest expense[120] - Adjusted EBITDA (non-GAAP) increased 23.9% to $9.3 million, with Adjusted EBITDA margin increasing to 14.9%[121] Six Months Ended September 23, 2023 Compared to Six Months Ended September 24, 2022 This section provides a detailed comparison of Transcat's financial results for the first six months of fiscal year 2024 versus the prior year, showing revenue growth, gross margins, and operating expenses Revenue (in thousands) | Segment | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :---------- | :----------- | :----------- | :--------- | :--------- | | Service | $81,284 | $69,143 | $12,141 | 17.6% | | Distribution | $42,118 | $41,957 | $161 | 0.4% | | Total | $123,402 | $111,100 | $12,302 | 11.1% | - Service revenue growth included $4.8 million of incremental revenue from acquisitions and 10.6% organic growth[122] - Distribution revenue increase was primarily due to $1.3 million of incremental revenue from an acquisition, offset by slower demand for non-rental products[123] Gross Profit (in thousands) | Segment | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :---------- | :----------- | :----------- | :--------- | :--------- | | Service | $27,055 | $22,322 | $4,733 | 21.2% | | Distribution | $11,780 | $10,483 | $1,297 | 12.4% | | Total | $38,835 | $32,805 | $6,030 | 18.4% | - Total gross margin increased 200 basis points to 31.5%, driven by increased Service segment revenue leverage, technician productivity improvements, and a favorable sales mix in the Distribution segment[125] Operating Expenses (in thousands) | Expense Type | Sep 23, 2023 | Sep 24, 2022 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Selling, Marketing and Warehouse | $13,325 | $11,720 | $1,605 | 13.7% | | General and Administrative | $19,227 | $13,855 | $5,372 | 38.8% | | Total | $32,552 | $25,575 | $6,977 | 27.3% | - The increase in General and Administrative expenses includes the non-cash charge related to the NEXA earn-out, incremental expenses from acquired companies, increased payroll costs, and continued investments in technology[126] - Operating expenses as a percentage of total revenue increased 340 basis points to 26.4%[127] - The effective tax rate for the first six months of FY24 was 25.3%, up from 16.9% in FY23, due to the discrete tax treatment of the non-cash NEXA earn-out charge[128] - Net income decreased by 37.2% to $3.4 million, primarily due to lower operating income and higher interest expense[129] - Adjusted EBITDA (non-GAAP) increased 20.0% to $17.8 million, with Adjusted EBITDA margin increasing to 14.4%[130] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, including Adjusted EBITDA and Adjusted Diluted Earnings Per Share, used to assess core operating performance - Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense, acquisition related transaction expenses, non-cash loss on sale of building, and restructuring expense, used by management to evaluate core operating performance[131] Adjusted EBITDA Reconciliation (Six Months Ended, in thousands) | Metric | Sep 23, 2023 | Sep 24, 2022 | | :-------------------------- | :----------- | :----------- | | Net Income | $3,409 | $5,429 | | + Interest Expense | $1,704 | $910 | | + Tax Provision | $1,155 | $1,108 | | + Depreciation & Amortization | $6,059 | $5,419 | | + Transaction Expense | $513 | $30 | | + Acquisition Earn-Out Adjustment | $2,800 | $0 | | + Noncash Stock Compensation | $2,171 | $1,942 | | Adjusted EBITDA | $17,811 | $14,838 | - Adjusted Diluted Earnings Per Share is defined as net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation, acquisition amortization of backlog and restructuring expense; divided by the average diluted shares outstanding[134] Adjusted Diluted EPS Reconciliation (Six Months Ended) | Metric | Sep 23, 2023 | Sep 24, 2022 | | :----------------------- | :----------- | :----------- | | Diluted Earnings Per Share – GAAP | $0.43 | $0.71 | | Adjusted Diluted Earnings Per Share | $1.13 | $0.98 | Recent Developments This section highlights recent significant corporate events, including a public offering of common stock and its impact on the company's financial position - On September 25, 2023, the company closed an underwritten public offering of common stock, selling 847,371 shares at $95.00 per share, generating $75.5 million in net proceeds[137] - A portion of the net proceeds from the public offering was used to repay the revolving credit facility in full[137] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's liquidity position, capital resources, and expected ability to meet future financial obligations - Foreseeable liquidity and capital resource requirements are expected to be met through anticipated cash flows from operations and borrowings from the $80.0 million revolving credit facility[138][139] - As of September 23, 2023, $48.0 million was outstanding on the revolving credit facility. Following the public offering, the facility was repaid in full, with $80.0 million available for borrowing as of October 27, 2023[143] - Net cash provided by operating activities increased to $16.0 million during the first six months of fiscal year 2024, up from $5.2 million in the prior year, primarily due to changes in net working capital[145] - Net cash used in investing activities increased to $18.3 million for the first six months of fiscal year 2024, up from $8.8 million in the prior year, mainly due to increased capital expenditures and business acquisitions ($12.9 million for acquisitions in FY24 vs. $4.0 million in FY23)[147] - Net cash provided by financing activities was $2.3 million for the first six months of fiscal year 2024, similar to the prior year, including borrowings from the revolving credit facility and common stock issuance, offset by term loan repayments and stock repurchases[149][150] OUTLOOK This section provides the company's financial outlook and expectations for the upcoming fiscal year - For fiscal year 2024, the company expects organic Service revenue growth in the high single-digit to low double-digit range and gross margin expansion[152] - The estimated income tax rate for full fiscal year 2024 is expected to range between 24% and 26%, an increase from recent years due to the non-deductible NEXA earn-out charge, which does not impact the actual amount of taxes paid[153] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses Transcat's exposure to market risks, specifically related to interest rate fluctuations and foreign currency exchange rate changes INTEREST RATES This section analyzes the company's exposure to interest rate fluctuations on its variable-rate debt and the potential financial impact - A 1% change in interest rates would increase or decrease yearly interest expense by approximately $0.5 million, assuming constant borrowing levels under the revolving credit facility[155] - The revolving credit facility has a variable interest rate, which ranged from 6.4% to 7.1% during the first six months of fiscal year 2024. LIBOR was replaced with the Daily Simple SOFR plus applicable Benchmark Replacement Adjustment effective July 1, 2023[156] - The 2018 Term Loan accrues at a fixed rate of 3.90% over its term[156] FOREIGN CURRENCY This section discusses the company's exposure to foreign currency exchange rate risks and its strategy for managing these exposures - Approximately 90% of total revenues for the first six months of fiscal years 2024 and 2023 were denominated in U.S. dollars, with the remainder in Canadian dollars and Euros[157] - A 10% change in the value of the Canadian dollar or Euro to the U.S. dollar would impact revenue by approximately 1%[157] - The company continually uses short-term foreign exchange forward contracts to reduce the risk of adverse effects from Canadian dollar exchange rate changes, not for speculative purposes[158] - The net change in the fair value of foreign exchange contracts resulted in a loss of $0.1 million during the first six months of fiscal year 2024, recognized as a component of Interest and Other Expense, net[158] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of Transcat's disclosure controls and procedures and states no material changes in internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[159] - There has been no change in internal control over financial reporting during the second quarter of fiscal year 2024 that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting[160] PART II. OTHER INFORMATION ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES This section reports on the issuance of common stock in an unregistered sale related to an acquisition and details the company's share repurchase activities Unregistered Sales of Equity Securities This section details the issuance of common stock in an unregistered sale related to an acquisition - On July 12, 2023, the company issued 38,785 shares of common stock to SteriQual, Inc. stockholders in connection with the acquisition, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933[161] Issuer Purchases of Equity Securities This section reports on the company's share repurchase activities, primarily for employee tax-withholding obligations Issuer Purchases of Equity Securities (Q2 FY24) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------- | :------------------------------- | :--------------------------- | | 06/25/23 - 07/22/23 | 19,716 | $84.88 | | 08/20/23 - 09/23/23 | 2,576 | $105.78 | | Total | 22,292 | $87.29 | - Shares of common stock were withheld to cover employee tax-withholding obligations upon vesting of restricted stock unit awards and stock option exercises in the second quarter of fiscal year 2024[164] - No shares were repurchased under the publicly announced Share Repurchase Plan during the second quarter of fiscal year 2024[164] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the 10-Q report, including acquisition agreements and certifications - Exhibits include the Agreement and Plan of Merger for Axiom, Registration Rights Agreement, Lock-Up Agreement, Amendment to the NEXA Share Purchase Agreement, and the Underwriting Agreement for the public offering[166] - Certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1) and Interactive Data Files (XBRL) are also included[166][167] SIGNATURES This section contains the official signatures of the registrant's authorized officers, certifying the report - The report was signed by Lee D. Rudow, President and Chief Executive Officer, and Thomas L. Barbato, Senior Vice President of Finance and Chief Financial Officer, on November 1, 2023[173]